Get ready for a thrilling ride as we dive into the world of currency markets and explore the recent AUD/USD rally! The battle between the Australian Dollar and the US Dollar is heating up, and it's time to uncover the secrets behind this exciting development.
Last week, the AUD/USD pair closed on a high note, marking its third consecutive weekly gain. This upward trend was fueled by a positive risk sentiment in the market, with factors like the US-China trade truce and strong corporate earnings playing a role. Additionally, Australia's third-quarter inflation report exceeded expectations, pushing AUD/USD to a three-week high of 0.6617.
But here's where it gets controversial... The rally took a turn after a surprise hawkish statement from the Federal Reserve's Federal Open Market Committee (FOMC) meeting. Fed Chair Jerome Powell dropped a bombshell, stating that a December rate cut was not a done deal. This statement strengthened the US Dollar against other major currencies, including the Australian Dollar.
Now, all eyes are on the upcoming Reserve Bank of Australia (RBA) interest rate decision. The RBA's last meeting in September kept the official cash rate on hold at 3.60%, as expected. However, the recent inflation report for the September quarter revealed a significant overshoot, with both headline and trimmed mean measures surpassing forecasts.
The RBA's preferred inflation measure, the trimmed mean, increased to 3.0% year-on-year, placing it at the upper bound of the target band. This has led to widespread expectations that the RBA will keep rates on hold tomorrow at 3.60%. But here's the part most people miss: the RBA's statement is likely to highlight upward revisions to unemployment and inflation rates, indicating a cautious approach.
With emerging downside risks from a cooling labor market, the RBA is expected to maintain its data-dependent stance, emphasizing that monetary policy remains restrictive. This leaves the door open for potential rate cuts if labor market conditions worsen.
From a technical analysis perspective, AUD/USD has slipped from its weekly high and is now testing support levels. The pair needs to hold above the 0.6495 area and a strong medium-term support band of 0.6445 - 0.6415 to regain momentum and break above last week's high. A breakdown below these support levels could signal a deeper pullback, initially targeting the 0.6300 area.
So, what's your take on this currency battle? Do you think the AUD/USD pair will continue its upward trajectory, or will it face further challenges? Share your thoughts and predictions in the comments below! Let's discuss and explore the potential outcomes together.
